Kazaa Settles Piracy Suits

The file-sharing service's operator pays the movie and music industries more than $115 million.

Record labels and movie studios won their long fight against one of the most notorious networks for online piracy Thursday, but the deal is unlikely to slow the worldwide trade in bootlegged songs, movies and television shows.

The entertainment industry's settlement with the operator of Kazaa was hailed as a milestone because it ends an era in which backers of file-sharing networks could make millions of dollars luring people to their services with pirated goods.

"This is a journey, and no individual event is going to transform the marketplace from total chaos to total order," said Mitch Bainwol, chief executive of the Recording Industry Assn. of America. "But this is an important chapter in that journey, because for a long time Kazaa defined what peer-to-peer was. Every time one of these illegal download services falls, it creates new oxygen for the legal marketplace."

As part of the settlement, Kazaa's operator, Sydney-based Sharman Networks Ltd., agreed to pay more than $115 million and create an authorized online service that lets people share copyrighted music, film or software -- and share appropriate royalties.

The success of a legal Kazaa is far from a sure thing. Other file-sharing companies that settled with movie studios and record labels saw a sharp decline in users once the free music and video disappeared.

As pirate networks try to turn themselves into legitimate businesses, the entertainment industry continues to crack down on individual consumers of pirated goods. The recording industry alone has filed 18,000 copyright-infringement lawsuits since 2003.

Online piracy, meanwhile, continues.

"I don't think anything has been accomplished here," said Michael Goodman, a senior analyst with the Yankee Group in Boston. "From a legal perspective, this is a yawner. They won the battle, but the battlefront moved on about three years ago. That's the problem with court systems. Technology and markets move way faster than courts can typically keep up with them. By the time you win that battle, who cares?"

Kazaa once accounted for nearly half of all online file sharing, but its popularity has plummeted in the five years since its owners were sued for encouraging piracy.

Like Napster before it, Kazaa was emblematic of music and film piracy to computer users worldwide. In its heyday, it was the world's most popular peer-to-peer network, at times attracting more than 4.2 million simultaneous users.

But many Internet surfers looking for free content have moved to services using technology that makes piracy more efficient.

Under the terms of the settlement, Kazaa will introduce filtering technologies to ensure that users can no longer share copyrighted music, film or software files. Sharman Networks already has paid $115 million to the recording industry as part of the agreement, according to sources familiar with the negotiations. Studios received a separate sum that was said to be in the tens of millions of dollars.

Sharman Networks issued a statement, saying the agreement cleared the way for Kazaa to offer licensed content.

"The settlement marks the dawn of a new age of cooperation between peer-to-peer technology and content industries which will promise an exciting future for online distribution in general and Kazaa users in particular," said Nikki Hemming, chief executive of Sharman Networks.

The agreement came at the conclusion of a lengthy legal battle that has spanned years and continents.

Last summer, the Supreme Court ruled that file-swapping firms could be held liable for encouraging people to take copyrighted works. That helped set the stage for settlement talks.

"I think it created an environment whereby the law is clear -- or more clear than it ever was before -- about what is legal versus illegal," said Dan Glickman, the Motion Picture Assn. of America's chief executive.

Analyst Eric Garland of BigChampagne, which tracks file-sharing networks, said the entertainment industry faces a crossroads: It can develop business models that embrace Internet distribution or engage in an even more aggressive anti-piracy campaign against people who download copyrighted works.

"Are we really going to see, at this late date, more and more court actions against kids and soccer moms or are we going to see a shift?" he said. "Are we going to declare victory, based on these big wins, and move on to the carrot?"